Insurers and other insurance distributors faced significant challenges while implementing the requirements of the German law transposing the Insurance Distribution Directive (IDD). Even though the IDD was transposed into German law as of 23 February 2018, several details were not yet available due to outstanding regulations. The new German regulation, i.e. the German Insurance Distribution Regulation, effective as of 20 December 2018 (and largely corresponding to a draft thereof published in June 2018) provides guidance and details, amongst others, with regard to the following areas, some of which are explained in more detail below:

  • The newly defined scope of regulatory obligations of insurance distributors regarding e.g. (i) governance requirements for the business, avoidance and disclosure of conflicts of interest principles, in particular regarding the principle that remuneration is to be structured in a way that does not conflict with their duty to act in accordance with the best interest of the customer, (ii) information about insurance intermediaries to be provided at first business contact (see below) and (iii) books and records and document retention requirements;
  • Complaints handling systems and out-of-court settlements;
  • Continuing professional and training and development;
  • Content and procedure regarding exams and exemptions (whereas the exemptions have been limited) and equivalence requirements regarding qualifications obtained in other EU member states;
  • Information to be provided for the authorization of an insurance intermediary (including new requirements transposing IDD requirements, e.g. disclosure of natural persons or entities holding more than 10 percent or more in voting rights or capital in an insurance intermediary);
  • Scope and requirements regarding third party liability insurance (Haftpflichtversicherung) or equivalent, which is an authorization requirement;
  • Additional requirements relating to insurance-based investment products and
  • Certain administrative law sanctions.

The information about the insurance intermediary to be provided at the first business contact needs to be updated in order to comply with the new guidance provided by the German regulation. Art. 18 IDD (and likewise section 15 of the German Insurance Distribution Regulation) require a disclosure of whether the insurance intermediary provides advice about the insurance product sold, even though German law hardly provides any scope for non-advised sales. The relevant information also needs to include, for example, whether the insurance intermediary receives a fee, a commission, any other type of remuneration or a combination thereof, but not the exact amount. The transposition of the IDD increases the requirements regarding documentation and retention of documents. This is relevant not only for insurance intermediaries, but also for insurers who engage own personnel directly in the distribution and/or cooperate with insurance intermediaries. It often proves useful for insurers to include language in the documentation governing their cooperation with insurance intermediaries which ensures that the insurance intermediary retains relevant documentation and provides it to the insurer upon request.Insurers and insurance intermediaries finally have more certainty when planning and designing their continuing professional training or development programs. This requirement of 15 hours of continuing professional training or development per calendar year was transposed amongst other with the revised German Trade Act as of 23 February 2018.

The German regulation fully transposes the mandatory complaints management system, including guidelines and a complaints management function, for insurance intermediaries. It may still be defined later, whether this fully applies to all intermediaries, or with lighter obligations for small intermediaries. In any event, any statements made by the insurance intermediaries should be aligned with the financial loss liability insurance of the insurance intermediary in order to avoid loss of their professional indemnity coverage.

In that context it should be noted that similar to the IDD the German regulation contains only principles regarding remuneration and the correct handling of conflicts of interests, while details are likely to be provided in future court decisions on a case-by-case basis.

The specifications on a German local law level transpose the IDD requirements and also contain some additional or stricter requirements. While the IDD provides, for example, that information about the insurance intermediary needs to be provided in good time before the conclusion of the insurance contract, the German Insurance Distribution Regulation provides that the information needs to be provided already at the initial business contact. If the first business contact is made via telephone, the information about the insurance intermediary needs to be provided (e.g. on paper) immediately after the first business contact. This requirement is hard to put into practice and has been widely criticized.